As noted in a prior post, the affordable housing industry is struggling to make ends meet after equity pricing took a dive in response to the decreased corporate tax rate under President Trump’s tax reform plan. While some reprieve was granted by the increases in tax credit allocations and appropriations for affordable housing programs under the 2018 federal spending plan, developers are still struggling to fill funding gaps. One city is proposing a creative way to funnel more money toward affordable housing: On April 16, Denver Mayor Michael Hancock proposed a 2% increase in the special tax on recreational marijuana, with the additional revenue generated to be earmarked for the City’s affordable housing fund.
The real estate industry has been on a high after the legalization of marijuana, but as we examined in “Part 1: The Real Estate Bloom,” getting involved in this budding industry comes with risks, the majority of which stem from marijuana being listed as an illegal Schedule I drug under the federal Controlled Substances Act (CSA). Under the CSA, it is illegal to possess, cultivate, and/or sell marijuana or to “knowingly open, lease, rent, use or maintain any place … for the purpose of manufacturing, distributing, or using any controlled substance.” Additionally, under the Comprehensive Drug Abuse Prevention and Control Act, the federal government is allowed to seize property that is connected to illegal drug activity. This federal illegality opens up the marijuana industry to a number of vulnerabilities. Indeed, federal prosecution of marijuana activities has been relaxed after the issuance of the Cole Memorandum, which instructed federal prosecutors to only focus its efforts on certain issues related to the legalization of marijuana in the states. Such issues include, among others, preventing the distribution of marijuana to minors, preventing marijuana revenue from ending up in the hands of criminal enterprises, and preventing the diversion of marijuana across state lines. However, although the Cole Memorandum resulted in the federal government taking a hands-off approach in its enforcement of cannabis prohibition, we may see a federal push back under the current administration, which has repeatedly expressed its opposition to the legalization of cannabis.
Following cannabis legalization in California, municipalities are beginning to face difficult decisions related to land use and planning. The challenge in siting industrial and residential uses, often in conflict, is not new for cities and their planners. But the new twist of cannabis growing and processing, treated as an industrial use in most cities, adds an added layer of complexity to land use decisions where lack of housing is also an issue.